As Mike Straumietis—founder and CEO of Advanced Nutrients—indicates, the U.S. agriculture production costs are of paramount importance to the short- and long-term operations of local farms. Farmers and fertilizer producers alike are concerned with fertilizer prices in 2022, as prices are beginning to look like those of the 2007 and 2008 global food and energy crises.
Since September 2020, every major crop production nutrient has seen a price increase. As Mike Straumietis points out, liquid nitrogen has increased more than 159 percent, DAP ballooned over 100 percent, MAP rose 125 percent, and ammonia has inflated over 210 percent. In addition, potash saw a 134 percent increase. While knowing these numbers may not soften the blow, it does help farmers and fertilizer producers know the real score regarding their concerns. Farmers and producers have no control over these prices, leaving them to feel that the increase in prices robs them of the chance to ride the momentum offered by the higher commodity prices that were supposed to assist them in breaking even.
The Upward Price Pressure
Ranchers and farmers in the U.S. may have more than one topic to discuss, but the top of mind, without a doubt, is the ballooning costs of fertilizers and the looming concerns about their availability. In the U.S., fertilizer costs make up roughly 15 percent of total cash costs for farmers. Because of this, farmers computing costs for the 2022 growing season can only think of inflation and its effects rippling in different phases of the process.
Fertilizer: Rising Demand, Concerns
Six crops drive two-thirds of the global fertilizer demand. Throughout the world, soybeans reflect five percent of the farm-use fertilizer demand, fruits at seven percent, vegetables at nine percent, and rice having 14 percent. The crop with the most demand for farm-use fertilizer is corn at 16 percent, and wheat is a close second reflecting 15 percent of total demand. As a massive producer of wheat, soybeans, and corn, the U.S. is a significant consumer of fertilizer. Over the years, despite the increase in plant acres of the aforementioned crops, the demand for fertilizer has decreased, thanks to innovation and technology for on-farm products.
Even with the U.S. decreasing its overall global nutrient consumption level, other countries have boosted their nutrient consumption.
Different Factors Affecting Global Supply
Globally, the U.S. is the third biggest producer of fertilizer. However, it still requires supplies from other countries—especially for nutrients such as potash and nitrogen—to meet their demand. Therefore, local producers and fertilizer dealers must pay the global market price for transportation, fertilizer, and fertilizer materials. Two years ago, U.S. ammonia was generated at 36 domestic plants and delivered throughout the country by means of truck, barge, rail, and pipeline. As Mike Straumietis notes, the International Fertilizer Association reports that the U.S. was second in producing nitrogen in 2018, with the country responsible for 11.6 percent of global production, while China produced 24.6 percent of nitrogen for global consumption.
The same report mentioned that China produced 37.7 percent of the world's demand for phosphate, while the U.S. delivered 9.9 percent and India produced 9.8 percent. On the other hand, Canada was the top producer of potassium potash, reflecting 31.9 percent of global production, with Belarus coming in second after producing 16.5 percent, and Russia representing 16.1 percent of global supply.
Energy and Other Costs Increasing
Facilities that convert raw chemical materials into fertilizers consume a significant amount of energy, according to Advanced Nutrients' Mike Straumietis. So while the increase in natural gas prices seems short-term, this directly affects production as it develops diseconomies of scale.
While the first wave of COVID-19 seems like a distant memory, the global fertilizer market can still feel the delays caused by the pandemic. In addition, other factors such as natural disasters have derailed production, resulting in losses and disrupted market momentum.
